One of the conceptual features of economical and political reforms in Russia since late 80-s has been the fact that the population was never viewed as the basic resource of the political and economical stabilization and active participant of the changes taking place. To a great extent that was the reason of the failure of the reforms. For the majority of Russians the newly acquired freedoms were poor compensation for the loss of savings, social status and predictable future. Most of the citizens who got used to total care coming from the state just could not use those freedoms; they felt they were "socially neglected" and in need of support by the state.

But active minority of the citizens still managed to fulfill themselves in the new conditions. The most enterprising ones turned to business, politics, added to the army of civil servants. Besides, another breed of active citizens exposed itself, the ones with talents of leaders and "social reformers" whose initiatives were non-commercial and aimed at well-being of the society.

These people and initiatives formed a special non-commercial, or "third" sector (different from the first - state sector and the second - business sector). The third sector has become an area to realize ambitions of people whose calling is public service. Among its leaders there are quite a few of those who had to leave their previous place of work due to cut-downs and non-payments, as well as those who had to fill in the vacuum in the system of social care because of the aggravation of the economical problems in the country. It was here in this sphere that civil initiatives were most widely spread. Their typical features were faith to the ideas of democracy, realization that terms "right" and "responsibility" could not be separated, and the skill to use acquired rights and freedoms to change one's own life and achieve socially important aims.

All over the world civil initiatives are that very element of the "social capital" which is essential for the effective development of the society and democratic state. As shown by research, in the countries with forming democracy the highest economical growth takes place in the regions with traditions of civil communities taking part in the administration. In other words, in these regions social capital is accumulated. Citizens' initiatives allow to build something more than formal "democracy" where nothing depends on a person after elections, they are the foundation of the true democracy based on the citizens' participation.

Social organizations are an intermediate between the state and the population. They take administrative decisions out of the hands of political elite organizing public dialogue on key questions of the country development, expanding self-administration and asserting active citizenship and people's responsibility for their own lives and the destiny of Russia in general.

When economical system is changing and the state must make non-trivial decisions and try different ways in political action, civil structures provide reliable feedback from the population. They help official institutions to obtain information about efficiency or inefficiency of their actions and reactions of the society to these actions.

In a pluralist democratic society where various group and individual interests cannot keep from colliding, civil structures function as a kind of a "resonator", providing non-violent and legal ways to solve a conflict. The role of these public organizations should be especially important in Russia, with this country's strong traditions of sole, authoritarian decisions. Nevertheless, development of such organizations has been held back up to the present moment.

The activity of the "third sector" lessens the gap between power and society, eases social tension and softens rebel trends of the population. Thanks to professionalism and valuable experience of self-organization gained over the last years, Russian public organizations are a substantial source of highly qualified staff and intellectual power necessary for building the state policy in various areas and making administrative decisions. It is especially important for overcoming today's stagnation in this field.

Civil initiatives, public control and education are the main ways to preventing corruption, building law? state with the rule of law and order and the highest priority of human rights. They are the ways to solve the most serious problems inhibiting the development of the country.

NCO classification

The civil sector has declared itself mostly in the social sphere where non-commercial organizations attend to about 30 million people a year. Thus they take substantial burden off the state budget and are actually the leaders of the social reform. They provide support for those who need it most, develop new kinds of social services and help. They are especially active about the problems that the state cannot solve due to the lack of funds or too short periods of time (in the cases of refugees, AIDS, home violence, drug addiction, homelessness, teenage crime, neglected children, problems of elderly people etc.). The non-commercial sector provides hundreds of thousands new jobs, thus enhancing professional level in the job market and mobility of the working population.

The most efficient way of realization of civil initiatives is uniting in non-commercial organizations (NCO). These organizations can be divided to four types according to their audience and the direction of their actions.

The first and most frequent type of the NCO have their own members as their audience. It includes two subtypes.

• "mutual aid organizations" uniting people with the same problems (organizations of the disabled, associations of parents of sick children etc.); in some cases this subtype can be presented by organizations of people based on their gender of demographic unity.
• "club type organizations" including various groups of self-improvement, people with the same hobbies etc.

These subtypes are not absolutely different, and often have the same characteristic features. They differ by the extent to which their members' problems are urgent and painful.

The second type of NCO unites organizations that aim at a certain problem which is not directly connected with the problems of the members. Again we can discern two subtypes.

"socially directed" (or charity) organizations. A part of them works on a complex of problems with certain categories of the population (for example, elderly people, large families or unemployed), other organizations concentrate on specific problems (like homelessness or AIDS prevention).
• ecological organizations (thinking of "ecological activity" as of care of the environment in general, including cultural monuments as well as wildlife etc.).

The third type is constituted by organizations of legal protection (traditional ones as well as groups of public control that have appeared recently, including the ones controlling the executive body activities).

Finally, the fourth type includes "infrastructure" NCO whose mission is to contribute to the development of civil initiatives, other NCO activities and help the citizens to take full part in decision making and administration.

While organizations of the first and third types are mostly using volunteers' help, the infrastructural and the best of charity ones employ professional staff, often including high-class professionals.

The third sector: today's position

The activity of NCO can lead to the decrease of centers of social tension and interference of the state, while increasing the efficiency of the state budget expenses. The negative trend in the third sector development means just the opposite - additional burden for the state budget and availability of social resources for the limited group of people.

The way Russian reforms have been going, it is closer to the second variant of the above. Lack of the sensible state policy in this field is the most important reason for the fact that the potential resources of the civil initiative are not used to provide for the citizens' well-being. The civil initiative is an extremely powerful social resource that must not be ignored in the modern society.

The number of registered non-state non-commercial organizations in the 90-s almost reached 275 thousand. One can just compare this to the number of the same kind of structures in the USA in the late 80-s - 1 million 140 thousand. In 1995 NCO outnumbered state and municipal institutions taken together. Annual growth of the number of these organizations exceeds 1.5 percent of all legal persons. Though one should take into account that many of the organizations have practically stopped working; the laws do not obligate such legal persons to liquidate their organizations, and therefore they are listed among the "live" ones. The actual number of working organizations can possibly be much lower than the data of the State Statistics Committee. On the other hand, it is allowed to form such organizations without registration. Although they are not involved in any economic activities, they employ active human resources and may have high influence in the society.

By the present moment the Russian third sector has evolved from sporadic initiatives to mass social movement. According to the State Statistics Committee, the total number of all juridical forms of non-commercial organizations reached almost 485 thousand by the 1st of January 2000. Today this sector is a rather powerful system accumulating increasing amounts of financial, material and organizational resources and the growing potential of civil initiatives. The basic and most important problem of the state policy concerning non-commercial sector in the last decade has been the absence of sensible strategy and tactics of using this constantly growing potential.

The state officials still tend to view the third sector as a low-skill apprentice only capable for some rough job in the social sphere. This attitude is caused by the fact that NCO resources are virtually not taken into account when state economical policy is developed. The role of the third sector in formation of the civil society in Russia, crystallization of new ideas of social development, decreasing of social tension, development of social technologies to solve problems of the society, protecting citizens' rights and building the law? state is also undervalued. Non-economical value of the sector is mostly unrecognized. This underrating of social importance of NCO in Russia results in decrease of resource efficiency, added burden to the state, inhibited growth of private investments to the NCO sector. The sector adjusts to attending to private interests of state officials and commercial structures, and that leads to increasing protest moods among the population. The measures listed below are able to profoundly change the situation at all levels.

Russian legislation and its gaps

The legislation of the Russian Federation concerning non-commercial organizations has not started forming as a system until 1990-s, though there had been earlier normative acts that recognized special status of organizations acting according to public interests.

In 1993 the Constitution of the Russian Federation guaranteed the right of citizens to organize and the freedom of action of public organizations (Clause 30). After the first part of the Civil Code of the Russian Federation was inured (on the 1st of January 1995) the norms concerning non-commercial organizations were put together in the single chapter titled "Non-commercial organizations" (Clauses 116-123, paragraph 5, Chapter 4). In this chapter the list of NCO types is given, including the ones that are allowed to work in the field of welfare (charity and other funds). It also specifies the legal status of different types of NCO, their ways of obtaining and using property and other norms. The foundational laws in this sphere, namely the ones "On public organizations" and "On non-commercial organizations" were inured on the 25th of May 1995 and the 12th of January 1996 respectively.

These basic laws formed the legal basis for the foundation and functioning of a wide variety of non-commercial non-state organizations. The combined efforts of NCO themselves and the state that lead to passing these laws in 1995 contributed to the substantial growth of newly formed NCO.

Activity of non-commercial organizations is also regulated by several federal laws ("On charity and charity organizations", "On the state support of youth and children's public organizations", "On trade-unions, their rights and guarantees") and other normative acts at the level of subjects of the Federation. According to the RF legislation, an organization is non-commercial if its activity is aimed not at making profit, but at solving socially important problems by way of attracting and using various resources, including donations. The profit of a non-commercial organization cannot be divided between founders or members of the organization, but should be spent according to the regulations.

In the last years in Russia ways of interaction between the state and NCO began to develop, especially at the local and regional levels. This interaction is aimed at solving socially significant tasks and has taken the following forms:

• state and municipal social control
• state social sponsorship (some of the tax exempts, lower custom fees, using state and municipal property totally or partly free of charge)
• stimulating social activity by direct financing (for example, subsidies, subventions and municipal grants)
• encouraging non-state corporate and individual sponsors.

Still, the official policy of the government towards NCO is characterized by two controversial trends.

On the one hand, legislative and executive bodies pressed by lobbyists or guided by short-term political advantage instead of using accurate economic calculations, approve federal laws and government acts supporting these or those NCO groups (the federal law "On state support of youth and children's organizations", the President's Decree "On the state support of the Russian organizations of the disabled" dated 22nd December 1993, No. 2254, the President's Decree dated 16th May 1996, No.727, "On the state support of youth public organizations of patriotic upbringing") or grants individual tax and customs exempts to specific organizations (for example, to the National Sports Fund, "Chornobyl" and "Afghanistan" organizations etc.). Often it leads to malpractice and corruption.

On the other hand, as a reaction to such scandalous stories covered in the mass-media, the government winds up itself and public opinion against non-commercial initiative as a whole. Having rather a vague idea of the so-called "priority of the state interests", the power inhibits the development of the civil society and its institutions. As a result, huge human and intellectual reserves - millions of volunteers and staff successfully working in thousands of NCO - stay unclaimed.

Russia still lacks efficient tax policy which would take into account the non-profit character of NCO and their meaning for the state. Today they are liable to most of taxes (over forty taxes are more or less applied to non-commercial organizations) and have to defend their right to some of the exempts. It contradicts the strategy of reforming the country's tax system. Today's legislation lacking integrated approach to NCO taxation, it aggravates the situation not just for the organizations, but also for the benefactors. Therefore it limits the influx of voluntary contributions to the social sphere.

According to the law, an NCO can go into business only if it is necessary to reach the aims of the organization. NCO business is liable to income taxes like commercial organizations: 11% to the federal budget and 19% to the regional budget. Russian laws define income as all funds received by an organization, including the money coming from children's arts and crafts sale or conference fees that are to compensate for the expenses and keep the organization going.

In NCO taxation and account keeping today there is no strict distinction between their major, non-commercial activity and business activity permitted by the law. It leads to numerous problems for NCO themselves and their charges, as well as the state. Even if an NCO offers just a single paid service during one year, it joins another category of taxpayers, therefore all contributions and other funds start to be taxed.

This approach can cause NCO to abandon all paid services. Their financial base will shrink and self-financing of all non-commercial activities will be no longer possible. In the current economic situation individual contributions are not a reliable source of funding (while in the foreign countries they form the most part of the budget of the NCO), there are virtually no Russian funds able to backstop NCO projects and philanthropy of commercial companies is rather punished than encouraged. If "honest" NCO exclude paid services, they will be on the brink of financial failure. As a rule, in such situation they either become fully dependent on the foreign sources of funding, or switch entirely to volunteer activities. Consequently, their potential in solving social problems of the country substantially decreases. The state budget loses prospective taxes (coming from authorized commercial activity and staff and advisers' salaries). Only several categories of NCO are the exception (associations of the disabled, religious organizations) - the ones freed from income tax and some other taxes.

Besides, taxation of the non-commercial activities of NCO, like added-value tax on gratuitous help to other NCO or income tax on give-away to needy people - shatter the organization's working efficiency and conflict with its essence.

On the other hand, unbalanced system of NCO taxation and absence of the clear distinction between their major activity and commercial services allow unscrupulous people to evade taxation on commercial activity using legal NCO status. That way the whole non-commercial sector is discredited.

In Russia corporate philanthropy is not encouraged socially, in other words, there are no sufficient tax exempts offered to corporate taxpayers that donate part of their income to charity. According to the law, voluntary contributions are distracted from the taxed income if they do not exceed 3-5% of the total profit. Taking into account the fact that most of the commercial structures try to conceal their income from hypertaxation, it is evident that such minor a reduction is rather a weak stimulus for philanthropy.

Contemporary legislation also ignores state support of individual philanthropy. Today in Russia natural persons have income tax exempts only if they donate money to budget organizations working in the fields of culture, education or health. Non-state non-commercial organizations in Russia are deprived of individual contributions, while in many countries worldwide the latter are their main source of income.

The majority of foreign charity funds financing NCO activity are able to function due to tax exempts on heirdom and stock income, if all their income is spent for charity. The absence of such norms in Russia inhibits home grant-giving structures because they do not have the sources to finance socially significant activities of the citizens. At the present moment there are very few grant-giving funds in the country.

Besides, the state is not efficient in stimulating social activity of the citizens by direct contract competitive funding of NCO projects from the budget. For example, the project of the law "On the state social control" submitted to the State Duma as long ago as 1995 has not still been approved. It should fix the rules and principles of forming, placing and executing orders for social programs on competitive base by organizations of all forms of property. The project received four negative references by the RF government and was rejected by the Duma at the first reading. And without legal base it is impossible to "start" the mechanism of the state social control.

As a result of the inhibiting factors listed above, Russian non-commercial organizations are practically deprived of the basic sources of financing: contributions of citizens and commercial companies, income coming from their own paid services, national grant-giving funds and state and municipal social orders financed from the budget.

NCO taxation policy development should be aimed not at granting tax exempts to specific organizations or types of activity, but at making non-commercial NCO operations tax-free, clear distinction between basic and commercial NCO activities and stimulating their commercial activity in the way of offering their own paid services. It would also be advisable to assign part of the profit to contributions, enhance control over accurate use of funds and accounts "transparency", introduce a special tax policy for corporate and individual philanthropists and national grant-givers.

The non-commercial sector, it being a special social, economical and political phenomenon, has not attracted researchers' attention until recently - in the late 60-s. It was only in the 70-s that this problematic became the subject of public discussions and political programs. Today the state and municipal policy in the industrial countries is built in consideration with the economical and political potential of non-commercial organizations. Nevertheless, it is important to realize that non-commercial sector has other benefits but its economic value.

By now many countries of the world have developed the system of interaction between power structures and non-commercial organizations and their donors , including legal, economic and functional aspects. Russia will have to do a huge job for the national non-commercial sector to catch up with the developed countries. There the help of NCO in solving social problems is really impressive. Nevertheless, using the experience of the global community and adapting it to our local conditions will speed up the progress, in spite of the different economical situation.

It is evident that the state cannot and should not play the role of an agency administrating social services. A famous American sociologist, Peter Druker (?) remarks that "the task of the state is to work out the rules and make them work by the force of law, the task of business is to make money. The task of the social sector organizations (NCO in our context) is to contribute to people's health and well-being... These organizations have one more aim, which is no less important. They awake our feeling of civic responsibility. All we can do as citizens is pay our taxes regularly and vote once in several years. Taking part in the organizations of the social sector, we can alter the way things are."

The third sector and the state

In the countries with developed democracy the role of NCO is publicly recognized. As a rule, NCO act as partners in solving many of the social problems, and often play the key role in this process. For example, there was an official document approved in Great Britain in 1997 declaring the basic principles of partnership between the government and NCO. Important role of NCO is also emphasized by the fact that the leaders of the state actually take active part in annual national conferences of non-commercial organizations, volunteers' forums etc.

The state treats the third sector as the provider of socially significant services. The considerable part of the latter is financed from the state sources (for example, in Great Britain in 1997 the share of local authorities and central government in funding the NCO sector economy was 2 billion 340 million pounds). NCO successfully compete with other organizations in some segments of the market of social services, healthcare, science, education, culture, self-administration and ecology. In the areas of legal protection, international aid, religion the share of non-commercial activities is considerably higher than in other sectors, while funding comes from various sources. Placing state orders in this sector is often most beneficial, because it gets best value, as well as allows to attract voluntary workers, additional funds and qualified specialists, it means individual approach to the needful and fuller account of the needs of specific groups of the population.

To keep the third sector at the highly competitive level, the state invests funds in its reinforcement, provides favorable conditions for its activity, first of all by sensible taxation. NCO taxation is different from other organizations in about all kinds of taxes. At the same time there are certain limitations, like spending the profit for the major non-commercial activity of the organization and strict control over using funds for the correct purpose. In Great Britain in 1997 the non-commercial sector retained 824 million pounds thanks to favorable taxation policy.

Besides the state grants, the sector adds other funds to the budget allocations. The state encourages NCO in this field appreciating their ability to mobilize private resources. Due to its smartness and flexibility in fighting social diseases, the sector acts as proving ground for new social technologies.

Variety of forms and volume of the state support of NCO and the system of procedures guaranteeing open competition and sensible use of resources is realized through official enactments and compulsory independent expertise at all stages. New forms of interaction are added after preliminary research. Any government program completed undergoes so-called program assessment (it consumes 5 to 10% of the program budget). No NCO can be backstopped without a report of its previous activity.

The third sector, being an element political counterweight system, also has a function of monitoring government activity. Non-state organizations are active lobbyists, they represent all social groups and give them a wide possibility to take part in the process of working out and making decisions, they form public opinion. Non-commercial sector is viewed as a managerial base of the civil society - the way of social and political relationships between the state and the citizens when the citizens have sufficient grounds to be sure that the government is acting efficiently enough and is concerned about their interests. NCO are a catalyst of feedback between citizens and government, they stimulate the mechanisms leading to power "transparency". That, in turn, boosts the citizens' patriotic feelings and responsibility and helps their positive relationships with the officials. The next stage of these relationships is a significantly new level of self-organization and self-administration that can be especially well seen at the base level - communities and districts.

Non-commercial sector and global economy

Global bonds and interactions forming worldwide open new prospects for non-commercial sector. In many spheres non-state organizations united in international networks much earlier than governments of their countries. Under the present conditions when the international corporations' activity is aimed at conquering new markets, NCO sector tends to minimize the social cost of economic competition, equalize life conditions of "North" and "South" acting as a peace-maker in international conflicts and clearing the way out for official contacts. In Russia alone international non-state organizations realize numerous projects worth hundreds of millions USD. These projects contribute to the process of reforming in practically all spheres of life.

The social sector has lately declared itself a self-sufficient participant in the economy. The fact is caused by the real achievements in economy and social sphere demonstrated by NCO. The total turnover in the "third sector" in 22 countries (Netherlands, Germany, Ireland, Spain, Belgium, Austria, France, Finland, Great Britain, Australia, USA, Israel, Japan, Czechia, Hungary, Slovakia, Romania, Argentina, Peru, Brazil, Columbia and Mexico, excluding religious organizations)reached 1.1 trillion dollars in 1995, which is equivalent to the amount of gross national product of Italy and Great Britain.

In the USA, for instance, the average annual growth of the national income for the period from 1977 to 1994 is 2.1% in business sector and 2.3% in government institutions, while in the non-commercial sector it is considerably higher - 3.7%. The budget of more than 1 million American non-commercial organizations reached 670.3 billion dollars in 1996 that amounted to 8.8% of the gross national product. In 1996 there were 10.9 million people employed in the third sector, which amounted to 7% of all manpower occupied in the production. At the same time the number of volunteers occupied in the sector amounted to 6.3 million people. In some countries, like Sweden, the share of non-commercial sector in the economy of the country reaches 15%, though this parameter in other countries is two times lower in the average.

The incomings of non-commercial organizations in comparable prices for the given period have grown by 49% from state and municipal sources, by 7% (contributions from corporations and individuals), by 43% (economic activity of non-commercial organizations themselves). In Belgium and Australia the amount of income in the non-commercial sector is comparable to the federal budget of Russia. At that moment the third sector provided full employment for 19 million people. NCO staff amounted to 5% of total number of employed population, 10% of service workers and 27% of people working in the social sphere. In Hungary the number of workplaces in the non-commercial sector have grown by 37%, while the total level of employment decreased by 1%.

NCO sector contributes to easing the social tension not only by creating new workplaces, but also by its noticeable in the area of social work. For example, in Germany now more than 35% of kindergartens are non-state institutions, as well as over 60% rest homes for disabled, 50% senior citizens homes and 40% hospitals. In France all local children's programs are carried out by non-commercial organizations including the ones funded by state contracts and grants. In 1994-1996 US Federal Government spent 425 billion dollars for social programs, while local authorities spent 225 billion dollars and non-commercial organizations - 460 billion dollars.

The cooperation of commercial and non-commercial sector turns out to be mutually beneficial: it improves the image of the company and consumer situation, and the latter gets resources necessary for its social mission and organizational development. Fruitful partnership of the two sectors allows the state to attract additional funds to the social sphere but the ones provided by taxation. Corporations that sponsor non-commercial programs use the positive image of the third sector in their public relations, advertising campaigns and marketing programs to enhance the population's confidence in their products and intentions. This circumstance is especially important today when demonstrating social responsibility of a company is an essential condition of its commercial success.

NCO sector provides a special service for successful firms and prosperous people - gives them a chance to satisfy their need to do good, which is realized in the way of charity projects and programs. Businessmen take care of their growing income and increasing cumulative social resource, the non-commercial sector provide its rational redistribution. Charity naturally exists in any social, economical and cultural environment.

Foreign researchers note positive correlation between rising economy and strong active NCO in the region.

© Authors: O.P. Alexeeva, G.D.Dzibladze, I.E.Donenko, O.V. Zykov, O.B.Kazakov, J.N.Kachalova, K.V.Kiseleva, A.R.Sevortyan, E.A.Topoleva, N.L.Khananashvili, M.M.Chertok, V.N.Yakimets.